Split or retained interest trusts: regular premium arrangements: further information
Policies may be placed into a split trust (IHTM20554) at the outset or after the policy has been in force for some time. Claims to IHT may arise in the following situations:
Policy placed into a split trust from the outset
The transfer of value when a regular premium policy is effected in a split trust from the outset will be equal to the initial premium paid. The payment of further premiums will give rise to potentially exempt transfers (IHTM04057) or immediately chargeable transfers (IHTM04067). These transfers should be returned on the form IHT403.
Policy placed into a split trust at a later date
Where a regular premium policy is taken out and only later placed into a split trust there will be a transfer of value equal to the open market value (IHTM20083) of the policy at that date. Usually this will be the same as the surrender value, but where the life assured has a reduced life expectancy at the date of transfer, the open market value of the policy may be higher. This is particularly relevant where the life policy is a term assurance (IHTM20102) which would not have a surrender value but might have a considerable open market value if the life assured had a reduced life expectancy. Any further premiums paid by the life assured will be transfers of value.
Life assured is diagnosed with a critical or terminal illness
If the life assured is, or had been, diagnosed with a critical or terminal illness which would enable a claim to be made under the terms of the policy, a claim to IHT may arise if no claim is made under the critical illness or terminal illness provisions of the policy.
Where the critical or terminal illness benefits have been retained by the life assured, but the death benefits are held for the benefit of others, a claim may arise under IHTA84/S3(3) if a claim to the critical or terminal illness benefits is not made. A successful claim in respect of the critical or terminal illness benefits would result in the claim value being paid to the life assured, increasing the value of their estate. Failing to make a critical or terminal illness claim, so that the policy pays out the death benefits instead, reduces the value of the life assured’s estate and increases the estates of the beneficiaries of the death benefits. The failure to make a claim may therefore be an omission to which IHTA84/S3(3) applies.
You should not raise the possibility of IHTA84/S3(3) applying without seeking the advice of the Actuarial Team.